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Hidden Home Buying Risks and How to Reduce Them

Written by Posted On Tuesday, 13 July 2021 15:21
Hidden Home Buying Risks and How to Reduce Them

Imagine your client has just bought a new home that you helped them find and are finally settling in. The boxes are unpacked, the furniture is where it needs to be, and as they settle in, suddenly, their son starts yelling about his shower going cold. A quick inspection reveals that the water heater in the garage has burst. It’s a pain, but the homeowners are not too worried about the financial hit. After all, a home warranty was part of the condition of sale. The water heater will be covered.

Unfortunately for the homeowner, the home inspection report prior to the sale had noted that the hot water heater had corrosive rust, meaning it was already broken. It wasn’t fixed prior to purchase, and since it was a known pre-existing condition, the warranty won’t cover it. The client is stuck with fixing a problem that existed before they bought the house.

In today’s frenzied residential real estate market, many buyers are foregoing the inspection in order to close a deal quickly. That’s unfortunate, as inspections are a critical step in the homebuying process that provide important information about the condition of a home’s structure and its systems. A National Home Inspection Study showed that the average home required $11,000 worth of repairs before sale. In addition, a 2019 survey of 1,000 home buyers from Porch found that almost one in five home inspections identified roofing defects (19.7%), electrical issues (18.7%) or window issues (18.4%). More than one in ten identified problems with the water heater (12.2%) or plumbing (13.6%). 

Without an inspection, your client may as well be buying the home sight unseen. And even if the seller won’t take care of pre-existing issues —  a luxury they may very well be able to enjoy, given how far this market has swung to the seller’s advantage — the information contained in the report will provide important information for the buyer so they can properly plan for maintenance and upkeep. It will also be important should they want to purchase a reliable home maintenance and repair plan.

No CarFax for Houses

In fact, the problem with pre-existing conditions is more fundamental than overlooking something in an inspector’s report. Frankly, it’s easier to get information about a used car before buying it than it is to understand a potential home’s maintenance and repair history before making a purchase. CarFax, for example, provides vehicle history reports that have become the standard for the retail auto industry. The company pulls data from thousands of sources to compile an extensive history that includes items such as airbag deployments, point of impact, a severity scale for accident damage, odometer readings, and even emissions reports, along with much more.

There’s currently no similar service for homes, leaving buyers with an unclear picture of how the house has been maintained and repaired. But as important as an inspection is, it’s just a single look at the home at one point in time. Inspectors aren’t omniscient, and they likely won’t catch everything. In the example above, if an inspector’s report doesn’t catch the water heater problem, the buyer may be on the hook to replace it. And while the homeowner may have legal options if there’s a failure to disclose, depending on the state’s local laws, they could have a time-consuming and expensive process on their hands that may not be worth taking on unless an issue is very serious.

So how can you advise your clients to protect themselves from risks they don’t know exist? It certainly doesn’t seem fair for buyers to be responsible for pre-existing conditions that they had no way of knowing about and that weren’t disclosed in an inspection report. 

A good home protection plan can help mitigate this risk, and it’s often negotiated as a condition of purchase, with the buyer requesting the seller to pay for it prior to closing. Again, in this market, that may not be an option, but it’s a good idea for the buyer to purchase one on their own. A strong service will protect homebuyers by going through the home inspection report to identify all pre-existing conditions, outlining what they will cover, and what needs to be fixed before it will be eligible. That way, the buyer has a clear understanding of exactly what they - or ideally, the seller - will address.

For many clients, buying a home can feel a bit like flying blind, given all the issues they may unknowingly inherit. But they don’t have to worry, so long as they take the proper precautions: contract with a quality home inspector, conduct a thorough review of the inspection report, negotiate with the seller to address known issues, and secure a home warranty service that will communicate upfront how they will mitigate the risk of unknown issues.

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Jorey Ramer

 
Jorey Ramer is the Co-founder and CEO of Super, a San Francisco-based insurtech company that offers subscription-based care for your home.

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